Enough! No more excuses. It's time to tackle bookkeeping once and for all! Join me... James
and Winnie as we share seven simple steps to get you started. What is bookkeeping? Bookkeeping is
the regular process of recording, sorting and storing a business's financial transactions
Is it the same as accounting? No. But the two are related. In my Accounting Basics
video I said that bookkeeping was one of the many branches of accounting but it's really
the trunk of the accounting tree. Why? Because accurate record keeping is the foundation to
doing your taxes, building financial statements, making business decisions and spotting mistakes
Right! It's time for those seven steps. But before we jump in I want to say a quick
thanks to my wonderful channel members... thanks! Thanks for your support. Make sure you watch this
one through right to the end because I'm also going to share two of my top bookkeeping tips
How do you start bookkeeping? Step one. Separate your business and personal transactions
mixing the two is a recipe for disaster. Why? Because it's a waste of time. You don't want to
have to pour over all of your bank statements and pick them apart. Trust me. You can miss tax
deductions and you might be legally required to keep them separate in any case. So don't dilly
dally. Do it! The easiest way is to open a business bank account. All of your business's transactions
should go through this new account. Don't use it for personal transactions and you'll be golden
Step 2. Choose a bookkeeping system. A bookkeeping system is a methodical way to record transactions
in a safe place. There are a few options... you could use spreadsheets like Excel and Google Sheets. These
are cheap and relatively easy to use. But they can it be time consuming to maintain and they can't cope with
complex bookkeeping tasks. Instead you could use accounting software. QuickBooks, Xero, Freshbooks
Wave and Sage are all popular choices. I'll drop links to them in the description. These are much
more robust than spreadsheets. You can use them to automate tasks to save time and reduce errors but
they are more costly and a bit more complicated. If this all sounds a bit much you can always
outsource your bookkeeping to another company. This can free up your time to focus on your
main business and you can lean on the expertise of professional bookkeepers. However it does come at a
price. The key is to find a bookkeeping system that aligns with your unique needs, budget and expertise
so it's important to do your research before jumping in. Step 3. Choose between single-entry or
double-entry bookkeeping. Single-entry bookkeeping only records one accounting entry for each
financial transaction. Usually in a cash account. It's simple to set up in a spreadsheet which makes
it a convenient choice for new businesses but it can oversimplify your finances which gives
you an incomplete picture. Double-entry bookkeeping records at least two opposite accounting entries
for every transaction. Debits and credits are the words we use to reflect each side
In an ideal world this is how you should do your bookkeeping. It's widely accepted, more accurate
and gives you a lot more financial data. There's a reason why all large businesses use double
entry bookkeeping. On the flip side it takes a lot more effort to set up and maintain so I'd
recommend using accounting software or hiring a bookkeeper to give you a hand. it helps to
have a basic grasp of accounting. If you'd like to learn more about that well click subscribe
because you my friend are in the right place. I've put together a Bookkeeping Basics cheat sheet for
you. It's a quick summary of all seven steps in this video - the links in the description. Step four
Choose between the cash method or the accrual method
of bookkeeping. In the cash method you record revenue and expenses when cash is received
or paid out. It's straightforward and gives you a good look at your cash flows. That makes it
a popular choice for small business owners who want to keep things simple. But it can be hard to
accurately measure your profit. In the accrual method you record revenue as it's earned and
expenses as they are incurred. Regardless of when cash changes hands. This method matches the revenue
you earn to related expenses which helps you accurately record your profit. It also gives you a
detailed look at your financial position. But it is harder to maintain so please consider your needs
before taking the plunge. Now that the setup is out of the way it's time for step five. Recording
transactions. This is where you enter your business transactions into your bookkeeping system. You can
do this daily, weekly monthly. Hand them over to your bookkeeper or record them yourself in your
spreadsheet or accounting software. While you're at it, make sure you jot down some extra details
The seller or purchaser, the document number, date description and amount. This information will
help you search through your transactions without having to keep going back to the original invoices
Make sure you record all of your transactions in each accounting period and you'll be in
good stead. Step 6. Sorting transactions. When you record a transaction you also need to file it in
the right accounts. An account is a place where we group together a set of related transactions
For example, if you make a sale then you should record the sale in your revenue account
Your complete list of accounts is called a Chart of Accounts. Sorting transactions into accounts
allows you to make financial statements like the income statement which summarizes your revenues
and expenses over a period of time and the balance sheet which gives you a snapshot of your assets,
liabilities and equity. Step 7. Storing transactions. So you've recorded and sorted a transaction, now you
need to store it and by that I don't just mean click save. We also need to store the evidence
that supports the transaction. You can pop the physical invoice into your filing cabinet or take
a digital copy and save it on your computer, in the cloud or within your accounting software. Having a
well-referenced system for securely storing source documents will keep your business compliant with
tax and financial reporting requirements and don't forget to back them up! There you have it
seven steps to kick-start your bookkeeping. Now all you have to do is repeat steps 5, 6
and 7 over and over and over and over and over and over again. But don't run off yet! I'm about
to share two bonus bookkeeping tips that'll set you up for success. Tip one. Make sure you budget
for taxes. Not very jazzy, I know. But you've got to keep on top of your tax obligations
Check with the tax authorities in your area to find out which taxes apply to you. Then set aside some
money each month. If it helps, you could open up another bank account and call it the tax
account. A little bit of planning goes a long way and you can sleep soundly knowing that you've got
your taxes covered. If in doubt, reach out to a tax accountant. Tip two. Do regular bank reconciliations
This is an opportunity to double check your bookkeeping. You compare the transactions on
your bank statements against those recorded in your bookkeeping system. The goal here is
to get them to agree. I made a video a while ago explaining how to do a bank reconciliation which
I'll link to in the description. By reconciling your bank account at the end of every month
you can keep your accounts accurate and up to date. This is key to successful bookkeeping. If
you found this one helpful then may I direct you towards my video on accounting basics. In
this one you'll discover the eight steps of the accounting cycle. It's a goodie! I'll see you there.